So often we at KIS are finding ourselves having to quickly arrange bridging finance for people who have bid at property auction without doing their homework! Typically this will involve making a winning bid at auction before finance facilities had been fully looked into, or having not viewed the property themselves or by a property surveyor. Therefore we are often asked to arrange urgent bridging loans because other facilities are not available due to time constraints or the condition of the property being purchased.
It is really important to view and ideally have surveyed any property that you intend to bid on at auction. It is also important to have your solicitor look at the legal pack that is available for each property from the auction house before the auction date, so that they can make you aware of any important factors contained with them.
Most important though is to ensure that you have the necessary funds or finance facilities in place before you make a bid. This is because if you make a winning bid you have just entered into a legal contract. 10 per cent of your bid will be required on the day as a deposit and if you do not complete within the normal 28 days then you will probably lose all your deposit. Although 28 days is the normal period in which to complete the purchase for property bought at auction, this can be different and any special conditions should be checked because there may be a requirement for completion within as little as 14 days.
If arranging finance to complete the purchase then bridging loans are often popular because they can be arranged quickly and have more flexibility when it comes to the condition of the security property. If considering bridging loans as a funding option, make sure that you have a facility in place before you make any bids, and have a plan as to how you are intending to repay the loan. Bridging loans are not a long term finance option, so you need to either be intending to sell the property after perhaps carrying out some improvements, or you are planning to refinance it using a buy to let mortgage or some other longer term finance facility.
You can also talk to us about buy to let mortgages because we have special plans that can facilitate putting buy to let mortgage facilities in place within as little as 2 weeks from application to completion. These express buy to let mortgage facilities are very useful because they can avoid having to take out a bridging loan, instead going straight for the mortgage facility. This obviously saves all the bridging loan costs.
When looking for short term finance facilities bridging loans can often be a great option. However bridging loans are not always an overall good finance option, and on some occasions when they are a good option, there may actually be a more suitable finance facility available.
As independent commercial finance brokers we provide various finance options to businesses and investors. In addition to bridging finance we also provide commercial mortgages, asset refinancing, development finance, mezzanine finance, buy to let mortgages, asset loans and invoice finance. As bridging loan alternatives we often provide fast buy to let mortgages, asset refinancing, invoice finance and asset loans.
Bridging loans are usually taken out to solve short term cash flow problems or gaps in finances whilst property or other assets are being sold or a finance facility is being put in place. Since bridging loans are short term methods of finance they are usually arranged for periods of 6 to 12 months. Time can quickly catch us up and if there are problems or delays with the proposed bridging loan exit route this can cause financial worries and problems. Other facilities can also be put in place quickly and can offer longer finance terms, which can help remove pressure in addition to perhaps also being a cheaper alternative to a bridging loan. Asset loans provide another option to raising short term funds. Fast asset loans can also be secured on assets such as cars, jewellery, valuable watches, boats, aeroplanes, antiques and art.
When finance is required to fund new build properties, or extensions and refurbishments to existing property, bridging finance is often a popular funding option. Bridging loans often lend themselves very well to these types of projects, but they may be better funded through the use of development finance. This is because development finance is specifically tailored to fund construction projects. Like bridging loans, and quite often provided through bridging loan providers, development finance is a short term finance facility with terms of up to a maximum of 3 years. In most circumstances more money for a project can be raised through development finance because the facility is arranged taking into consideration the current value and also the end value of the property. This is unlike bridging loans that base their total lending facility on the current market value, although this can be adjusted later as work progresses and the value of the security increases.
The funding for building projects is not all required at the start, but is normally spread throughout the project. With development finance the funds can be released in stages, meaning that interest charges can be saved which makes the project more profitable.
Whilst the financial crisis in the Eurozone continues the UK does not want to sit around and avoid taking measures to protect itself. Consequently in order to help protect the UK from the Eurozone financial crisis, the UK Treasury and the Bank of England have announced a £140 billion plan that is hoped will both protect and also jump start the British economy.
There are many proposals but the main plan is to provide billions of pounds in cheap loans to the banks, who in return for this money will provide more needed loans to businesses and more mortgages to households. This is hoped will help investment in business and increased production, together with helping people to buy homes and providing a boost to the property market. Overall it is hoped that this measure will help support the flow of credit to where it is really needed.
The money being made available will be through a ‘funding for lending’ scheme. This scheme will provide cheaper than normal loans to the banks for a length of time that could be several years. The amount of money an individual bank will receive, and at what cost, will be determined by the lending performance of that bank. The lending performance of each bank receiving money from the funding for lending scheme will be determined by the bank’s ability to maintain or expand their lending levels to households and UK businesses that are outside the financial sector.
An additional proposal from the Treasury and Bank of England is to provide a short-term liquidity scheme that banks can use to cover their cash shortfalls. This liquidity scheme will provide a cheaper and simpler way for the banks to cover their cash shortfalls than the facilities they currently have to use.
The Bank of England says that these measures are being put in place to help protect the UK during these financial stormy times until calmer times return!
These measures are very welcomed especially as there have been recent rises in the costs for commercial mortgages, loans and other financial facilities due to the banks struggling to raise money due to the ongoing Eurozone problems. The measures should also help to protect the UK banks from the impact of the Eurozone financial crisis because they will not be so reliant on the international markets in order to raise money.
When looking for finance to fund renovation or new build projects, bridging loans are often a popular option. Bridging lenders will lend according to the current value of a site or property and many bridging loan providers are happy to lend on land, building sites and property that is in need of restoration. Because other lenders are reluctant to lend on property that is in need of construction or restoration, this is an important reason why bridging loans are often used to fund building and restoration projects.
Once the work has been completed a developer will either sell the completed property and the proceeds used to repay the bridging loan, or alternatively they may refinance it with a more traditional method of finance.
Bridging loans are arranged based on the current market value of the property. When construction and refurbishment work is carried out correctly the property is likely to increase in value as work progresses. However any bridging finance taken out to fund building and restoration work would have been taken out based on the property value at the time of receiving the finance. This can often restrict the amount of funding that can be received for a project.
Development finance is similar to bridging but is a more specialist method of finance used for funding building projects. With development finance the lenders will take into consideration the value being added to a project as work commences and progresses. This allows them to release more funds than would have been available through bridging finance. In addition development finance allows for funding to be arranged over longer periods than is possible for bridging, and can also save customers interest charges because funds can be drawn down from the lender as they are required.
Developers will also need to contribute finances into any project. This could also be in the form of equity owned in the land being used for development or perhaps equity in other property. When a developer is unable to contribute the amount of equity required by the development finance provider, there may be the option to use mezzanine finance.
Mezzanine finance is available to experienced developers and is a method of raising additional finance for new build developments, major restoration and conversion projects. A mezzanine finance provider will provide funds and take a second charge behind the principal development finance lender. At the end of the project they will expect their money back in addition to a small amount of interest and also a percentage of the project profits. Their share of the profits would have been agreed before hand, and will be in proportion to the amount of risk involved.
The first step to make is to do your homework, and research thoroughly. It is important to investigate the area or areas that you are thinking of buying your investment property in. Use the local newspapers and property websites to check the availability and demand for rental property, taking note of the rental amounts being asked and the open market value of the properties.
It is also important to think ahead a look at factors that could influence the future demand for rental property in the area. For example property that are close to industrial areas are usually a good option because people like to live close to work. Therefore with regards to future demand is it an area where new businesses are starting up or an area where there is a decline in industry.
You could also talk to local letting agents to obtain more information about the demand for rental property and other factors that may be important.
By doing your research you should be able to form an idea about where you think it would be best to buy your investment property, and how much the ideal property is likely to cost.
The next big step is sorting out the finances. You will need to know how much money you have available to fund your investment project. The chances are you are going to require a buy to let mortgage to help fund the purchase of your investment property. Therefore you will need to know how much money you wish to put into the purchase and how much you will require on a buy to let mortgage facility.
The best deals are available up to 60 percent loan to value, although there isn’t a huge difference when compared to the buy to let mortgage deals that go up to 75 percent loan to value. If at all possible avoid the 80 to 85 percent deals as these are limited and therefore not very competitive.
When calculating how much money you are putting in, remember to take into consideration any other costs, such as any repairs you may need to make to the property, servicing the central heating and any other appliances, decoration and any other work or purchases that maybe required. Also allow for legal fees, stamp duty if applicable, and any mortgage payments that you may have to make before you start receiving rental income.
The biggest concern most people have with regards to obtaining a buy to let mortgage is their income and do they have enough. With buy to let mortgages the lenders are more concerned in the potential rental income of the property and will this income, allowing for a reserve, be sufficient to pay the monthly interest payments.